What is meant by "digestible assets" in the context of an LBO?

In the context of a leveraged buyout (LBO), "digestible assets" refer to assets that provide additional cash flow opportunities. These are typically strong cash-generating assets that can be transformed or managed effectively to enhance value and profitability. In an LBO scenario, the acquisition is heavily financed with debt, and thus the ability to generate consistent and reliable cash flows from the underlying assets is crucial.

Such assets are desirable because they can support the debt load through generated cash flows, enabling the company to meet interest and principal repayments. Furthermore, these assets often have the potential for operational efficiencies or growth strategies that can further increase their cash flow contributions. This capacity to generate cash enables the private equity firm or acquirer to achieve its return on investment and ultimately realize a successful exit from the investment.

The other options do not align with the concept of digestible assets. For instance, assets that can easily be downgraded would not be attractive in an LBO context because they would indicate weakening performance and increasing risk. Assets with limited resale value or high maintenance costs would also be less appealing, as they do not provide the desired cash flow stability or growth potential necessary for servicing significant debt levels.